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Sunday / July 3.
HomemibusinessAre Investments Still as Safe as Houses?

Are Investments Still as Safe as Houses?

It’s a good time to buy property – the combination of high yields and low interest rates means you can purchase property with reduced effect on your cash flow.

With interest rates reasonably low and rental yields in capital cities quite high, there’s currently a lot of interest in property investment. You may be asking: what’s that got to do with me?

Investec’s Trevor Robertson, says that chances are you will “end up in the game”.

“People who work in the eye care profession like bricks and mortar. Often they start out buying a small property to live in and then keep this as an investment when they need to purchase something bigger,” Mr. Robertson told mivision.

…chances are you will end up in the game..

He said the appeal of doing some further investigation into property investment right now is that the combination of high yields and low interest rates means you can purchase property with reduced effect on your cash flow.

“For example, the rental yield you could expect on a AU$490,000 property in Sydney is 5.3 per cent, or $25,740. Depending on the type of loan, and assuming a five per cent deposit, your interest expense could be significantly less than that, meaning your investment could at least be cash flow neutral.

“The Sydney market is quite strong right now,” said Mr. Robertson. “If you’re looking for properties around the $800,000 to $1.5 million mark in the north and east of Sydney, there’s a lot of demand. But there isn’t a lot that falls into that band now. The market is very hot.”

While the residential property market in Melbourne remains subdued, there are still opportunities. For example, the rental yield you could expect on a $253,000 property in regional Victoria is also 5.3 per cent, or $13,260. Again, depending on the type of loan and assuming a five per cent deposit, your interest expense could be significantly less than that, meaning your investment could at least be cash flow neutral. According to Mr. Robertson, it really depends on where you’re looking in Melbourne as to where you’ll find the best investments.

“The Brisbane market is picking up,” he said. “The valuations are coming in more in line with client expectations now. Around the inner-ring, places like Paddington and Bulimba, which are your blue chip areas where you’ve seen the growth previously, are starting to recover, and rental prices haven’t dropped off.
We’re seeing people re-entering the property market because of low interest rates,” said Mr. Robertson. “There’s a lot of demand as a result and agents are putting pressure on people to exchange. That’s the case for many people on fixed incomes entering the market.”

He said eye care professionals should be wary of groups targeting professionals and encouraging them to gear up to build a property portfolio.

“There are a lot of planners out there who advise our clients to gear up to invest, but if they own properties they can’t rent out, they could put themselves in a vulnerable financial situation.”

Owning an investment property is usually a long-term investment. That makes it important to be able to ride through the financial lows so that you are still there to reap the rewards when the market goes through an upward cycle.

“You may do well, but there’s always a chance you could lose money, so taking the advice of an accountant, lawyer and financial planner is a good idea before investing in anything” said Mr. Robertson.

Depending on whether you’re planning to invest in a property or rent out your existing property, you may want to investigate different sorts of loans, too. Interest only loans can be useful for investment properties if you still have a loan against your principal residence. During an interest-only period, you only pay back the interest that your loan incurs, so any spare cash flow can be used to reduce your home loan debt, which unlike the interest on an investment property loan, is not tax deductible.

This is just another example of the way in which a financier with extensive experience working with medical and eye care professionals can be beneficial, said Investec’s Andre Karney. “As specialists in that area we are able to do things which the general financiers are unable to do. We’ve been doing it for 20-odd years, so we know this market in a deeper way than anyone else.”

Disclaimer

The information contained in this article is general in nature and has been provided in good faith, without taking into account your personal circumstances. While all reasonable care has been taken to ensure that the information is accurate and opinions fair and reasonable, no warranties in this regard are provided. The opinions expressed in this article do not necessarily reflect the opinion of the author or Toma Publishing and its subsidiaries.